FICO, short for Fair Isaac Corp., is usually placed in front of the term "credit score." Fair Isaac created a scoring model based on credit information and it is used by all the major credit bureaus. This score affects most financial areas of your life.
FICO Score
The FICO score is a numerical representation of what type of credit user you have been in the past. Credit bureaus look at your credit report and use the information in it to create a FICO score. Once this score is calculated, it can be used by creditors to make quick decisions about whether they should extend credit to you. The credit scoring system ranges from 300 to 850 points. The higher a score is the better.
How it is Used
Your FICO score is used in several ways, and they can all affect you financially. For example, when you apply for a loan such as a mortgage or auto loan, the lender uses the credit score to determine if you should be approved. Beyond that, the score also helps determine how much you pay in interest on the loan once you receive the money. Your credit score is even used by your insurance provider when calculating your insurance premiums.
What's in FICO Score?
Your FICO score is comprised of several parts in relation to your financial life. The biggest portion of your FICO score is your payment history. This means that if you always make your payments on time, this factor helps you get a higher score. Another portion of your score is based on the amount of debt that you have in relation to available credit. The length of your credit history and the types of credit you have also play a role in calculating your credit score.
Considerations
Although every credit bureau uses the same basic FICO formula to calculate your score, each credit bureau can have a different score for you. This is because not every creditor reports all the same information to each credit bureau. You could have different credit scores from each of the three major bureaus. Your score can change as you improve the way you use credit in the future as well. To find out your credit score, you can buy a copy of your credit report from the major credit bureaus.
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